Considering refinancing or claiming a tax deduction for your renovation?

We understand there is so much to consider when deciding whether or not to proceed with a bathroom renovation. Everyone thinking about undertaking a bathroom renovation is trying to weigh up functionality, practicality, design elements, potential blunders and of course finances!

Spending your hard earned cash on something means you want to ensure you’re getting the best bang for your buck (potentially some tax offsets or deductions) and to know your bathroom renovation will stand the test of time – from a design and quality standpoint!

Be smart when refinancing to renovate.

It’s not uncommon for people to look into refinancing to increase their renovation budget. This may mean your money is currently tied up or simply not available at this point in time for a renovation – however, it’s something you feel financially comfortable to proceed with. Refinancing can safely be done by taking out a new loan or extending your current loan. We suggest you look into alternate lenders as well as your existing as you may find other lenders are more competitive in providing a lower rate or more appealing loan features.

If, however, you are content with your current loan and lender, this may allow you to avoid additional costs and fees associated with refinancing. Some pros associated with refinancing include lower interest rates than personal loans and you may be granted to borrow a larger amount in a more simplified way. If you are disciplined enough to make repayments to your loan quickly, you will also save money.

Is my bathroom renovation tax deductible?

Generally speaking, if you build or renovate your own home, which must be your main place of residence, you are exempt from any capital gains tax (CGT). Regarding homeowners, the ATO states, ‘If the dwelling is your main residence and you use any improvements as part of your home, they’re exempt from capital gains tax if you sell it’.

If you have an investment property different tax rules apply, though you can claim a lot more than an owner/occupier. Be aware that if you have or are considering renovating for profit, or flipping houses, the ATO is going to look at this as business activity. This is likely to have implications for your tax status, and how any profits are taxed.

Major renovations, such as remodelling a bathroom, are classed as capital improvements by the ATO – and are claimed as capital works deductions. The Australian Taxation Office (ATO) allows investors to claim capital works deductions in any residential building where construction commenced after the 15th of September 1987.

Capital works deductions make up 85-90 per cent of a total depreciation claim. This applies to the structural items of the building and any fixed items, such as the walls, doors, windows, cupboards, retaining walls, toilets, sinks and the roof.

For a residential property, investors can claim capital works deductions at a rate of 2.5 per cent per year for a maximum of forty years from the property’s completion date. These cannot be claimed in the year you incur them. Deductions for depreciation and expenses incurred while building/renovating are deducted over a number of years. This is done on a sliding scale, depending on when your property was built – and this is where you may need to consult the ATO guide to depreciating assets. Alternatively, get advice from a registered tax agent.